Finance and Credit

8/7/2019 Finance and Credit

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MoneyDoesn·t Growon Trees

A Farmer·s Point of View

Amanda Ou



Objectives

} Students will understand the history and function ofthe Farm Credit System.

} Students will become knowledgeable about

where and how to obtain credit.} Students will be able to fill out a loan

application.

} Students will understand the 5 C·s of Credit.



Where does your spending

money come from?



Quick Write:Where do farmers

obtain money to finance their operations?



The Farm Credit System!

Purpose: To provide a dependable source offinancing and financial services for agriculturalpurposes and rural housing



What is the Farm CreditSystem?

} The only member owned agricultural lender (Cooperatively owned)

} Established in 1916

} The Farm Credit System provides one-third of the

nation's agricultural credit.



History of Farm Credit System

}1908: President

Roosevelt appointed aCountry LifeCommission to help therural population obtain

loans.



History of Farm Credit System

}1916: Federal Farm Loan Act created theFCS! It was based on Germany·s

Landschafts.}12 Federal Banks were created which were

owned by the farmer



Role of Credit}Credit provides the farmer the opportunity

to acquire money to invest in their farmsor to cover operating expenses.

}Credit is a resource for the farmer likeland, labor and management.



` Private Sources Insurance companies

Commercial Banks

Individuals Merchants and Dealers

Where to obtain credit?} Public Sources

} Federal Land Credit Associations (FLCA)

} Production Credit Associations (PCA)

} Farmer·s Home Administration (FhA)

} Banks for Cooperatives (BC)



Public Sources} FLCA and PCA are main sources of loans to

farmers.

} PCA= short and intermediate loans

}Operating expenses

}Farm equipment

}Livestock

}Farm buildings

}PCA have a maturity of less thanseven years.

} FLCA= long term loans

}Real estate

}Rural home mortgages

}Refinancing



Advantages of Public Sources} It is flexible, basing repayment on seasonal

agricultural income.

} The system has a reliable, competitive

source of funds.

} It knows agriculture. System loan officers have

both financial expertise and a background inagriculture; they understand agriculturalists'

needs.



Disadvantages of Public Sources}Disadvantages of FLCA

} The FLCA associations operate in well-

defined areas, so it is not possible to"shop around" for the best loan from this

source.

} There are also restrictions on where a

home can be built using this money.

} With a variable-interest loan, the

cost for interest can go up, thusmaking the loan payments higher.



Applying for a Loan} Items to Consider:

} Shop around

} Type of Financial Need will determine whattype of lender to pick

} Consider the lender·s reputation

} Investigate the lender·s loan policies

} Permanence and Stability of Lender } Lender·s experience with agriculture



What information does the farmer needto bring when applying for a loan?

} Know what you want to obtain a loan for.If it is a piece of equipment, for example,

have several options, with prices anddescriptions.

} Know why it is wanted and how it will be paid for. Prepare a partial

projected budget.} Bring an up-to-date financial statement,

listing assets and liabilities.



How is the Farmer Evaluated?} The 5 C·s of Credit

} Character: personal character and

experience of the borrower

} Collateral

} Conditions: Conditions of the

Loan

} Capacity: Ability to Repay

the Loan} Capital: Financial Standing

Finance and Credit

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